Variance Analysis And Balanced Scorecards

Variance Analysis and Balanced Scorecards

Many organizations utilize balanced scorecards to effectively evaluate and manage their performance across multiple dimensions, including financial, customer, internal processes, and learning and growth perspectives. For this analysis, Starbucks Corporation is a prominent example of a company that has implemented a balanced scorecard system to align its strategic objectives with operational performance measures. Starbucks’ use of this framework enables it to monitor various performance indicators comprehensively and drive continuous improvement.

Within Starbucks’ balanced scorecard, two significant variance measures could include customer satisfaction variance and labor cost variance. Customer satisfaction variance compares actual customer satisfaction scores to targeted or expected scores. If actual satisfaction falls short of expectations, the company can investigate which factors—such as service quality, product availability, or store environment—are contributing to the variance. Addressing these issues allows Starbucks to enhance customer loyalty and brand reputation. Conversely, positive variances indicate strengths that should be sustained or amplified.

Labor cost variance measures the difference between the expected or standard labor costs and actual labor costs incurred during a period. If actual labor costs exceed the standard, it may indicate inefficiencies such as overstaffing or extended breaks, which can be rectified by optimizing staff schedules. Alternatively, favorable variances may reveal efficient staffing levels and productivity. Starbucks can utilize these variances to control operational expenses, improve scheduling, and enhance overall cost management, which directly impacts profitability.

Understanding why service companies like Starbucks are more sensitive to labor and price variances than material price variances involves the nature of their operations. Service companies primarily depend heavily on human resources, making labor costs a significant component of overall expenses. Variances in labor yield a direct impact on service quality and customer satisfaction. Price variances are critical because service providers often operate in dynamic markets where wages and service-related costs fluctuate frequently. In contrast, material costs constitute a smaller proportion of total costs and are easier to control or hedge against market fluctuations.

In conclusion, managing these variances is vital for service companies to sustain profitability. Effective variance analysis allows organizations to identify operational deviations early, adopt corrective actions, and ensure alignment with strategic goals. For companies like Starbucks, vigilant control over labor and service-related variances is crucial to maintaining competitive advantage while delivering high-quality customer experiences. As such, continuously monitoring and analyzing these variances should be a core component of their strategic performance management system.

References

• Kaplan, R. S., & Norton, D. P. (1996). The balanced scorecard: Translating strategy into action. Harvard Business Press.